Ten ways to take public procurement forward

5 May 2010
Peter SmithPART TWO In yesterday’s blog we outlined the concerns that public procurement must tackle. So what can be done? Here are 10 ideas: 1. From “procurement” to “spend management” The only way in which the required savings can be delivered will be through relentless attention to the whole spend management process. The strategy for public procurement should refocus on this wider picture, and rebrand public “procurement” as “spend management”. That will require effort in promoting proactive demand management to cut off spend at source; in rationalisation of specifications; in aggressive and commercial contracting; and in skilful and value-driven contract and supplier management. Public organisations should ensure they have a board level sponsor for spend management, and should report annually on results. 2. The Stopping Gate We recommend renaming the OGC’s Starting Gate review process the Stopping Gate, with a presumption that projects will NOT be allowed to begin. Only schemes with a high probability of success, a strong financial or economic payback, and top level support should proceed. The same process can also be applied to existing projects to establish which should be closed down immediately after the election. The top 100 projects and programmes should be reviewed in the first six months. 3. Stop buying the best The time has come for the public sector to focus on buying adequate but not over-specified goods and services. We recommend all procurement exercises should weight total lifetime cost as at least 60 per cent of the overall weighting in the evaluation. This would send a strong message to supply markets and lead to lower priced goods and services being chosen. 4. Clear decisions on collaboration There should be greater clarity and explanation of strategies for specific spend areas across government. Much collaboration should be based at regional level, which maintains greater market dynamism and flexibility, and should include a presumption against single “mega contracts” (or frameworks) except in a few carefully justified spend areas. Where collaboration is sensible, it must be based on organisations committing spend to the contract in advance of the approach to market. 5. Merge procurement units While collaboration is not a panacea, many procurement departments in public organisations are of sub-optimal size. Smaller procurement organisations – in smaller local authorities, health trusts and PCTs, police forces, colleges and others - should be encouraged to merge, form or use shared services or consider outsourcing. We do not believe this should be mandated but a clear sense of direction can be promoted, and tools and models developed to support such moves. 6. Focus on value post-contract award Organisations should identify the skills they have to address management of contracts post contract award, develop plans for addressing their most significant contracts and target savings through the identified routes. Continuous value improvement throughout the contract period must become second nature for purchasing and supplying organisations. Organisations may have to put some of their best people on to these activities to have any chance of achieving the required benefits. 7. Hit the fat cats, squash corruption To start addressing the “fat cat” dangers identified yesterday, we recommend introducing a cap on day rates for professional service providers to public sector organisations, linked to the prime minister’s salary. We believe this will equate to around £1,250 per day. This will also have the benefit of encouraging work on a payment by results or risk/reward basis. The options around including “anti-fat-cat” evaluation questions or criteria in tender evaluation should also be investigated. Corruption of any sort must be addressed harshly, and tighter rules introduced in areas such as lobbying, and ex-politicians or officials taking jobs with suppliers to government. 8. Slash the cost of procurement We must reduce the cost and elapsed time of procurement activities. There should be more use of templates and standard procurement processes. A system for suppliers to log their standard pre-qualification information only once could be put in place at low cost by putting the onus on firms to maintain their own information using something along the lines of Google Documents.  Procurement processes must remain compliant to legislation, but within that clear guidelines should be issued around the time needed to run procurement exercises. And no major procurement should be launched until it has passed the Stopping Gate view (see point 2). 9. Measure this properly Savings must be defined as actions that actually hit the bottom line. That means lower spend, category by category. Treasury, the NAO and Audit Commission should jointly issue a revised efficiency savings methodology which all public organisations will be required to follow. That should focus on real bottom-line reductions in spend and budgets. Spend and savings data from public organisations should then be published. 10. Honesty and openness We need openness on spend, processes, and supplier performance - all of which should be better shared around the procurement network and more widely. Open discussion about the optimum levels and type of collaboration; credible, transparent processes for measuring savings; different funding methods (a public debate around PFI for instance); about the likely timescales for procurement processes and subsequent projects; avoiding the craziness of MOD actively planning to delay projects; about the skills that exist in procurement and where external support will be needed and about assessing organisations’ procurement capability with rigour and honesty. And lastly… Life may get so difficult for purchasers and organisations that public sector organisations may be tempted to outsource the whole problem. An outsourced “procurement partner” may be able to take away much of the burden of EU regulations or other onerous constraints, and perhaps pursue savings on a more ruthless basis. If that does happen it may in time prove to be a positive development; in the short term though it will be a sign that the “perfect storm” has hit public procurement.
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